BLOCKCHAIN: HOW IT WORKS AND WHY SO POPULAR

Merely, 12 years ago on 31st October 2008, SATOSHI NAKAMOTO published a paper on the internet about the idea of bitcoin. The Paper’s first few lines almost depicted all. The lines – “A version of electronic cash that would allow payments to be sent directly from one party/person to another party without involving a financial institution.” The value of bitcoin in 2010 was ~ 0 INR and value in 2020 ~ 15 lakhs INR. Recently, it touched its high price point, and now again is the topic of discussion among the market and media. Why so much difference?

Like the US dollar is controlled by the Central Bank of US and the Indian rupee is controlled by RBI. Normally, our financial systems are based on “TRUST”. Whereas Cryptocurrency is a digital asset over which central banks or financial institutions have no control or rules/regulation. The currency notes and coins have value just because they are guaranteed by the government and central bank. Every currency has a promissory note with the signature of our governor and without a signature, the currency note would be like ordinary paper, its value will be zero.

When we deposit our money in banks so that after a few years we will get some returns and interests on our money but with this, we are also allowing banks to play with our money. They give our money to big companies and individuals as loans. In many cases, the company takes big loans and runs away at the time of returning, and at last, the common people have to cover it, which means our money is not safe in the hands of these financial institutions. This is the reason why bitcoin is getting popular as direct transactions will be done. Also, we have seen that to transfer money from one country to another, banks take much more time and transaction charges. Bitcoin also overcomes this because people don’t have to pay these additional charges.  A normal bitcoin transaction takes only ten minutes that is much better than this financial institution.

HOW CRYPTOGRAPHY TECHNOLOGY WORK?

To understand or to learn cryptography one will require to study advanced mathematics and computer science. There is a single public account in digital form of all bitcoin transactions called ”LEDGER” and a copy of this ledger exists on all the systems that are connected to the bitcoin network. Those who run this system are known as “MINERS ”, Miners work is to verify the transactions, like if A wants to give one bitcoin to B then miner work is to check whether A have that much amount in his account or not, and then miner approves the transaction and after complex computational calculations the transaction is completed and in return of doing this miner gets bitcoin as a reward. This system is called “proof of work”. Then the transaction is added to the chain and a block of transactions is created and that’s why it’s called BLOCKCHAIN.

The whole transaction time is almost 10 minutes which is impractical in real life. Suppose we have to buy a packet of milk and for payment we use bitcoin but we have to wait for 10 minutes for the transaction and that’s impossible. We can't waste our time on such mini transactions. Maybe in the future, we will see these changes. Many restaurants and cafés have started to take payment in bitcoin. Bitcoin was first to arrive then many came to like – ETHEREUM, LITECOIN, RIPPLE.

Negative:

There is negative part also like-

• Today, we all have properties like gold coins, houses, etc. These are physical that we can touch, show, and keep as a future investment but there is no physical bitcoin and that is very risky.
• More hackers keep their eyes always on our money.
• The selling and purchasing of illegal weapons and drugs have been started with the online payment that is creating difficulty to catch the culprit.

REFERENCES:

https://www.youtube.com/watch?v=shXV3nwUo

Ankita Singh (2019-2023)

Computer Science Department

KIET Group of Institutions